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News In Review

April 27, 1998

Case Corp.
Common Platforms Yield Added Value

By Tom Stein

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ROI In The Real World

C ase Corp. is turning to an increasingly popular financial metric, called Economic Value Added, to measure returns on its IT projects.

EVA was developed by Stern Stewart & Co., a New York management consulting firm. It takes net operating profit and deducts a charge for the capital invested in a company, business unit, project, or single plant or assembly line. EVA is designed to keep managers aware of the assets used for a project as well as the expected returns, according to Stern Stewart.

By taking capital and equity costs into consideration, EVA calculates a dollar amount of wealth a project has created each year. That comes closer to measuring gains the way shareholders would define them, say proponents of the metric. An increase in EVA would mean a boost in the company's market value.

Case, a $6 billion maker and distri butor of agricultural and construction equipment that has used EVA in the past, will give the metric its first big test with an IT project: a major overhaul of the systems that drive Case's worldwide replacement-parts business. The Racine, Wis., company hopes to create a single, common global system that can handle inventory control, shipping, billing, and other financial data used by its parts operations in North America, Europe, and Australia.

The system will replace three separate, internally developed applications that have evolved in different ways over the years, although they each reside on the same IBM mainframe at the company's Racine data center. Under the plan, the North American and Australian applications will be gradually phased out beginning in June and ending in 2000; the new system will be based largely on the existing European application and will run on the same IBM mainframe in Racine. "All three systems had similar beginnings, but because they've run largely independently in the last 10 years, they have different functionalities and data structures," says Dave Luttig, manager of Case's North American parts operation and co-manager of the new project. "We looked at each to find key functions we want to keep for our new system."

Improved Service
The move will help Case better serve its retail customers around the world, says CIO James Hatch. "A retailer in any given location doesn't want to deal with multiple systems that function differently," he adds. "The dealer wants a single image of Case. The object of this project is not only to reduce our cost of doing business, but also to enhance service and provide a better parts-ordering process to dealers."

Luttig and Hatch say having a plan for return on investment was a critical part of getting the project approved by Case senior management. "We don't invest in technology just to invest in technology," Luttig says. "We had to show that there would be a definite payback, that there would be strategic advanta ges to having everyone on a common platform."

In analyzing costs and benefits over the 1997-2003 period, Case planners calculated there would be upfront software development, IT infrastructure, and operational costs totaling more than $9 million--but no significant returns until the year 2000. Case would break even on the project by the end of 2001, the planners say, then begin receiving annual paybacks of $7 million to $11 million in the next year.

The project team, made up of both IT and parts-business managers, brought its financial plan to a Case executive committee that includes the company's CEO, chief financial officer, and chief operating officer. Once those execs were convinced the project would bring value to the company, they gave it their blessing.

CIO Hatch says it's crucial that any IT project have a solid business grounding. In this instance, Case's parts business did most of the financial-payback analysis, while IT looked at costs. "The business group that's actually using the systems has to take ownership on the benefits side," Hatch adds. "IT takes ownership on the cost side."


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